Interim Results - 26 weeks ended 26 November 2017

Joules Group plc

("Joules", the "Group")

Interim Results for the 26 weeks ended 26 November 2017

"Further expansion of the brand across channels, product categories and target markets"

· Group revenue increased by 18.2% year on year (17.5% in constant currency), driven by growth across retail and wholesale channels

§ Retail revenue increased by 16.2% with E-commerce sales up 19.7% and Store sales up 14.2%

§ Wholesale revenue increased by 23.0% (20.6% in constant currency)

· International revenue increased by 26.4% and now represents 11.3% of Group revenue

· Underlying EBITDA increased by 22.5% year on year with EBITDA margin increasing 40 basis points to 13.8%

· Net cash at the end of the Period was £3.0 million, an improvement of £1.4 million on the prior year

· Active3 customer base increased by 18% to 1,090,000

· Interim dividend of 0.7 pence (FY16: 0.6 pence)

· Retail sales over the Christmas period (seven weeks to 7 January 2018) up 19.2% year on year

· The Board now anticipates that full year profit will be slightly ahead of the range of analysts' expectations

Colin Porter, Chief Executive, commented:

"The Joules brand has continued to perform very well, delivering growth in customer numbers and further expansion across channels, product categories and target markets.

The creativity, energy and ability of our entire team remains critical to driving the business forward. I would like to take this opportunity to thank all colleagues across the world for their outstanding efforts throughout the Period.

Joules' brand, with its distinct heritage and values, underpins the Group's exciting growth potential as we continue to develop as a British lifestyle brand with broad international appeal. Whilst trading conditions look set to remain challenging across the sector, with our differentiated brand, unique product offer, loyal and growing customer base, exceptional team and well-invested infrastructure, Joules is well positioned for continued progress and expansion."

1 Underlying excludes share based payments and exceptional costs. In FY17, the exceptional costs related to the costs of admission to AIM. A reconciliation to reported (IFRS) results is included in the financial review below.

2 Underlying EPS: underlying PBT less tax at statutory rate divided by the number of shares.

3 Active customer is a customer registered on our database who has transacted in the last 12 months.

4 Financial information in the front of this report has been rounded to the nearest decimal place. Totals in the tables may not equal the arithmetic sum of presented numbers. Percentages are calculated on non-rounded numbers and may not conform to the percentage derived from the rounded components.

5 This announcement contains inside information.

Enquiries:

Joules - 'a premium lifestyle brand with an authentic British heritage'

Established in Britain by Tom Joule nearly three decades ago, Joules is a premium lifestyle brand with an authentic heritage.

A true multi-channel lifestyle brand, Joules carefully designs clothing, footwear and accessories for women, men and children, as well as an expanding range of homewares, toiletries and eyewear collections, with personality to match those of its customers' colourful and uplifting outlooks, available through its own retail stores, online, rural shows and events and wholesale channels.

Quality, Britishness, family values, colour and humour make Joules stand out from the crowd. This approach, along with an unwavering attention to detail, and drive to surprise and delight its customers with unexpected product details, remains at the heart of everything Joules creates and has been central to the brand's success and expansion.

www.joules.com | www.joulesgroup.com 

Joules Fast Facts

* Figures are stated as at 26 November 2017 

CHIEF EXECUTIVE'S REPORT

I am pleased to update our stakeholders on what has been a very good first half of the year for the Group as the Joules brand has continued to expand across channels, product categories and target markets. Revenue during the 26 weeks to 26 November 2017 (the "Period" or "first half") increased by 18.2% to £96.2 million (H1 FY17: £81.4 million) and underlying profit before tax increased by 24.3% to £9.3 million from £7.5 million in the comparable period last year.

The Group's performance was driven by further growth across all product categories with a particularly strong outcome in the core Womenswear category, where outerwear, dresses and tops all proved particularly popular. Further expansion of Accessories, Footwear and Childrenswear also contributed to the Group's sales growth.

Joules is a differentiated brand with an authentic heritage and strong brand values, and this underpins the Group's exciting growth potential as we continue to develop as a British lifestyle brand with broad international appeal.

FINANCIAL REVIEW

Group results

To provide comparability across reporting periods, the results within this financial review are presented on an "underlying" basis, adjusting for share based compensation and exceptional costs in relation to the IPO. A reconciliation between underlying and reported (IFRS) results is provided at the end of this Financial Review.

Group revenue increased by 18.2% to £96.2 million (H1 FY17: £81.4 million), representing an increase of 17.5% on a constant currency basis. Retail revenue increased by 16.2% and Wholesale revenue increased by 23.0% (20.6% constant currency).

Underlying operating profit increased by 23.9% to £9.4 million (H1 FY17: £7.6 million) and EBITDA increased by 22.5% to £13.3 million (H1 FY17: £10.9 million). The EBITDA margin increased by 40 basis points from 13.4% to 13.8%.

Underlying profit before tax ("PBT") increased by 24.3% to £9.3 million (H1 FY17: £7.5 million), whilst statutory PBT increased by 22.8% to £8.3 million (H1 FY17: £6.9 million).

Segment revenue

Retail

Retail revenue increased by 16.2% to £65.9 million (H1 FY17: £56.7 million), driven by good growth across both Stores and E-commerce:

Retail Stores

Store revenue increased by 14.2% to £38.9 million (H1 FY17: £34.1 million). During the first half of the year a net 10 stores were opened and, at the end of the Period, the Group operated 118 stores (H1 FY17: 107) in addition to three franchise stores (H1 FY17: 3).

Retail E-commerce

E-commerce revenue increased by 19.7% to £23.6 million (H1 FY17: £19.7 million). E-commerce sales growth was driven by increased customer acquisition and retention activity, improved inventory availability, and ongoing e-commerce platform enhancements.

Wholesale

Wholesale revenue increased by 23.0% to £30.1 million (H1 FY17: £24.5 million), which represented an increase of 20.6% on a constant currency basis. The good growth reflected the strength and appeal of the Joules brand in the UK as well as strong momentum in the Group's target international markets, North America and Germany.

International revenues

Growth in both international wholesale and e-commerce helped drive a 26.4% increase in the Group's total International sales, which grew to represent 11.3% of total sales (H1 FY17: 10.6%).

Gross margin

Gross margin at 55.6% was marginally ahead of the comparable period in the prior year (FY17 H1: 55.5%). This result was supported by continued discipline in promotional activity and an improvement in international wholesale gross margin.

Foreign currency hedging

Most of our product purchases are US Dollar denominated. To mitigate the uncertainty created by movements in currency and to support our commercial planning and sourcing activity, we maintain a hedging programme with an objective of hedging the full anticipated US Dollar requirements for a minimum of two seasons ahead. We have currently hedged our expected US Dollar requirement for the balance of the current and subsequent financial year.

Administration expenses

Underlying administrative expenses increased by 17.0% from £37.6 million to £44.0 million, representing 45.7% of revenue (H1 FY17: 46.2%). This increase reflects further investments in our central teams, primarily in the Group's design and commercial capability, as well as increased investment in customer acquisition and retention campaigns that continue to generate good returns.

Depreciation and amortisation increased by £0.7 million to £3.9 million (H1 FY17: £3.2 million), as anticipated, following the completion of several IT projects in the prior year as well as the growth in the retail store estate in line with our strategic plans.

Finance costs

Underlying net finance costs of £0.1 million (H1 FY17: £0.1 million) related to interest and facility charges on the Group's revolving credit facility and term loan with Barclays Bank PLC.

Earnings per share

Basic earnings per share for the Period were 7.3 pence per share (H1 FY17: 6.1 pence).

Underlying basic earnings per share for the Period were 8.5 pence (H1 FY17: 6.8 pence). Underlying EPS is calculated based on underlying profit before tax less tax at the effective statutory rate.

Dividends

The Board is pleased to declare an interim dividend of 0.7 pence (FY17: 0.6 pence). The interim dividend will be paid on 10 April 2018 to those shareholders on the register at the close of business on 9 March 2018.

Cash flow and cash position

Net cash flow from operating activities was £10.7 million (H1 FY17: £5.5 million). The year-on-year improvement reflects the increase in earnings before interest, tax, depreciation and amortisation (EBITDA) and lower net working capital outflow of £2.5 million (H1 FY 17: £5.3 million).

Capital expenditure in the first half was £13.0 million (H1 FY17: £7.2 million). Major areas of capital expenditure included new store openings and relocations as well as IT projects, including phase two of the company-wide ERP implementation programme which is due to go live in the second half of the current financial year. In addition, £4.4 million was invested to acquire the site for the Group's future head office in its hometown of Market Harborough.

Net cash/(debt) at the end of the Period was £3.0 million (H1 FY17: £1.6 million), an improvement of £1.4 million.

The Group has access to a £25 million revolving credit facility provided by Barclays Bank PLC to fund seasonal working capital requirements. This facility matures in July 2021. The acquisition of the new head office site was, in part, funded through a new £3.5 million, five-year, term loan facility arranged with Barclays Bank PLC.

Reconciliation of Underlying and Reported statutory (IFRS) results

Non-underlying administration expenses: £1.0 million (H1 FY17: £0.6 million), included share based payment expense of £1.0 million (H1 FY17: £0.3 million) and exceptional costs of £nil (H1 FY17: £0.3 million).

Share based compensation plans were established following the IPO, as detailed in the AIM admission document, with awards being made on an annual basis, typically with a three-year performance period. The associated income statement expense of £1.0 million (H1 FY17: £0.3 million) is excluded from underlying results within this financial review as it is non-comparable across periods whilst the share plan award cycle is in the initial three years.

A reconciliation between Underlying and Reported statutory results is provided below:

BUSINESS REVIEW

During the Period, we continued to deliver excellent progress against our strategy for the long-term development of Joules as a premium lifestyle brand, both in the UK and internationally.

The brand's continued expansion and success was recognised again at the 2017 Drapers Awards where Joules won Mainstream Brand of Year for the second year running, against strong competition from other leading lifestyle brands, and was also awarded Fashion Retail Business of the Year (£101m-£500m revenue). These awards represent a real stamp of approval from the fashion industry for our brand as well as our talented and enterprising team.

Our strategy is built on four key pillars, underpinned by a consistent focus on product quality and design:

1. Increasing customer value

One of our key strategic priorities is to increase the Joules customer base and further enhance brand loyalty and value. During the Period, awareness of the Joules brand continued to grow with active customers increasing by 18% against the prior year to 1,090,000 (H1 FY17: 922,000) driven by the growing store estate, effective marketing and expansion though our wholesale partners leading to increased exposure for the brand.

2. Drive total UK brand sales

During the Period we opened 11 new stores and closed one store. We also relocated six stores where we could take advantage of lease breaks to upsize a store or improve our location. The payback period on new stores, opened for more than one year remained comfortably below our appraisal threshold of 24 months and all of our continuing stores deliver a positive profit contribution.

New openings during the Period spanned our different store location types:

- Lifestyle - Abersoch, Ambleside, Mumbles, Salcombe

- Local - Ipswich, Nantwich

- Metro - Oxford

- High Street - Bracknell, Perth

- Regional Shopping Centre - Rushden Lakes

- Premium Outlet - Gloucester Quays

3. International expansion 

The Joules brand and our collections continue to resonate well internationally, and during the Period we made good further progress in our target North American and German markets.

In the US, we further expanded our presence in leading department stores with Nordstrom increasing product range listings in response to their customers' appetite and demand for the brand and Dillards launching Womenswear for the Spring/Summer 2018 season, following the launch of Childrenswear in the Autumn/Winter 2016 season.

In the first half of the year, we completed the transition of our US independent retailer accounts from the third-party distributor to the management of our own New York based sales and marketing team. This will take full effect in the second half of the year as the Spring/Summer 2018 seasonal orders are dispatched. This transition provides us with greater control over the growth of the brand within North America.

Our German wholesale business has performed in line with expectations with the brand continuing to be received well and achieving a notably good performance in the independent retailer segment.

4. Product extension

Our core categories continued to perform well with Womenswear delivering good growth and our outerwear products again resonating strongly with customers and performing very well.

We continued to extend the Joules brand across product categories including further development within Accessories and Childrenswear, from baby through to toddler, younger and older girls and boys. Our Footwear category also continued to expand and perform well with particularly good growth across the range. We plan to continue to expand the brand across relevant and related product categories and we recently launched our first range of Activewear for women in Spring/Summer 2018. The collection is inspired by the Great British countryside and features our exclusive hand-drawn designs.

Licence income was in line with expectations with good performances from our existing licensed product ranges of toiletries, bedding and eyewear. These categories each continue to perform well, and we see exciting growth potential through expansion with carefully selected licence partners where there are opportunities that align to Joules' distinctive brand values. Following the end of the Period we launched the Joules designed sofa range in partnership with DFS and we are pleased with the early customer reaction.

OUTLOOK

Joules is a strong and growing brand with clear growth opportunities across each of our distribution channels and target markets.

Since the end of the Period we have continued to trade well. Retail sales through the Christmas trading season for the seven weeks to 7 January 2018 were up by 19.2% against the prior year. Group trading in the second half of the financial year to date has, overall, been in line with our expectations. Given our performance to date, the Board now anticipates that profit for the full year will be slightly ahead of the range of analysts' expectations.

Looking further ahead, the headwinds facing UK retailers are well documented and show no short-term signs of abating. The impacts are generally projected to continue to drive input cost inflation and margin pressure across the sector. Joules is well positioned to face this period of sector uncertainty. We have a strong differentiated brand; a unique product offer; a loyal and growing customer base; an exceptional team and a well-invested infrastructure. These core assets, combined with our strong product sourcing capability and long-term partnerships with core suppliers, underpin the Board's confidence in the Group's continued progress. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

We confirm to the best of our knowledge that:

- The condensed interim set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

- The Interim Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

- The Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Notes to the condensed consolidated financial statements

For the six months ended 26 November 2017

Reporting entity

Joules Group plc is a company domiciled in the United Kingdom. The condensed interim financial statements of Joules Group plc as at, and for the 26 weeks ended, 26 November 2017 comprise the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements as at, and for the 52 weeks ended, 28 May 2017 are available on request from the Company's registered office at Joules Group plc, 16 The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU or at www.joulesgroup.com.

1. Basis for preparation

The interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board (IASB) adopted by the European Union.

The accounts have been prepared in accordance with accounting policies that are consistent with the May 2017 Report and Accounts and that are expected to be applied in the Report and Accounts of the year ending 27 May 2018.

This report is prepared in accordance with IAS 34. The interim financial statements do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for Joules Group plc for the year ended 28 May 2017 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unmodified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Going concern

The Directors have prepared a detailed forecast with a supporting business plan for the foreseeable future. The forecast indicates that the Group will remain in compliance with covenants throughout the forecast period. As such, the Directors have a reasonable expectation the Company and Group will have adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to prepare the financial statements on the basis of going concern.

Critical accounting judgements and key sources of estimation uncertainty



Producing financial statements in accordance with IFRS requires management to make necessary estimates and assessments. Estimates are based on past experience and other reasonable assessment criteria. There remains a probability of further adjustments in the value of the assets and liabilities in future financial years.

Significant accounting judgements are applied in the following areas:

Impairment: Stores are identified for further impairment testing primarily on the basis of current performance, with growth assumptions based on Directors' knowledge and experience. The Directors have used forecast models and an appropriate pre-tax weighted average cost of capital in their property, plant and equipment impairment calculations.

Inventory valuation: Inventory is carried in the financial statements at the lower of cost and net realisable value. Varying consumer demand creates a risk that the cost of inventory exceeds its net realisable value. Management calculate the inventory provision based on the ageing profile of stock, with further adjustments made based on Director's knowledge and experience of the provisioning required.

2. Revenue

An analysis of turnover by geographical market is given below:

3. Segmental review

The Group has three reportable segments; Retail, Wholesale and Other. For each of the three segments, the Group's chief operating decision maker (the "Board") reviews internal management reports on a monthly basis. Each segment can be summarised as follows:

· Retail: Retail includes sales and costs relevant to Stores, E-commerce, Shows and Franchises.

· Wholesale: Wholesale includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer.

· Other: Other includes income from licensing, central costs and items that are not distinguishable into categories above.

The accounting policies of the reportable segments are the same as described in note 1. Information regarding the results of each reportable segment is included below.

Other expenses in November 2016 included £300,265 of IPO related exceptional expenses (November 2017: £nil) which are disclosed separately on the face of the income statement in order to summarise the underlying results.

5. Property, plant and equipment and intangibles

During the Period the Group made additions of £13,037,000 (November 16: £7,136,000) and disposals of £nil (November 16: £nil). During the period the Group acquired a new head office site, invested in a replacement ERP system due to go live in H2 FY18, and continued to invest in new stores.

6. Dividends

In the Period a final dividend of 1.20 pence per share was paid with a total value of £1,050,022 (November 2016: £nil) in respect of the year ended 28 May 2017. The Board has declared an interim dividend for the year ending 27 May 2018. The interim dividend of 0.70 pence per share (H1 FY17: 0.60 pence per share) will be paid on 10 April 2018 to those shareholders on the register at the close of business on 9 March 2018.

7. Hedging and Translation reserve

Hedging reserve

The reserve represents the cumulative gains and losses on hedging instruments in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedge transaction impacts the profit or loss or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.

Translation reserve

Exchange differences relating to the translation of the net asset of the Group's foreign operations which relate to subsidiaries only, from their functional currency into the Group's presentational currency being Sterling, are recognised directly to the translation reserve.

8. Financial instruments

Derivative financial instruments and cash flow hedges

The Group holds derivative financial instruments to hedge its foreign currency exposures. These derivatives, classified as cash flow hedges, are initially recognised at fair value and then re-measured at fair value at the end of each reporting date. Hedging instruments are documented at inception and effectiveness is tested throughout their duration. Changes in the value of cash flow hedges are recognised in other comprehensive income and any ineffective portion is immediately recognised in the statement of comprehensive income. If the firm commitment or forecast transaction that is the subject of a cash flow hedge results in the recognition of a non-financial asset or liability, then at the time the asset is recognised, the associated gains or losses on the derivative that had been previously recognised on other comprehensive income are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in other comprehensive income are recognised in the statement of comprehensive income in the same period in which the hedged item affects net profit.

9. Earnings per share